Despite a challenging global trade environment marked by economic shocks and protectionist measures, India's export outlook for 2026 remains cautiously positive, buoyed by strategic trade agreements and a resilient domestic economy. While headwinds persist, a combination of diversification efforts and a focus on domestic competitiveness is expected to keep India's export trajectory on an upward, if modest, path.
In fiscal year 2025, India achieved record exports of $825.25 billion, demonstrating a 6.05% growth rate despite global disruptions stemming from the Russia-Ukraine war and the Israel-Gaza conflict, which significantly impacted supply chains and increased freight and insurance costs. However, the picture is nuanced. A recent Global Trade Research Initiative (GTRI) report suggests a more tempered outlook for FY26, projecting total exports to reach approximately $850 billion. This marginal increase reflects concerns over rising protectionism in advanced economies, weakening global demand, and new climate-linked trade barriers.
One of the most significant challenges comes from the United States, India's largest trading partner. Under the Trump administration, the U.S. has imposed steep tariffs on Indian exports, initially a 25% "reciprocal" tariff, followed by an additional 25% penalty related to India's continued imports of Russian oil, bringing the total duty to 50%. These tariffs have already impacted several key sectors. For example, India's exports to the US fell about 21% between May and November 2025 under the 50% tariff regime. Sectors like gems and jewelry reported a 30% fall in October. The US tariffs on India have triggered a 37 per cent plummet in exports, leading to extensive job losses in the textile, and gems and jewellery sectors.
Despite these challenges, India's exports to the US have shown signs of recovery, climbing to $700 crore in November after falling to $540 crore in September. This rebound reflects the resilience of Indian exporters and strong seasonal demand. Moreover, ongoing negotiations for an India-US trade deal offer the potential for reducing tariffs to 15-20%, which would significantly improve India's competitiveness.
In the face of US trade tensions, India has actively pursued diversification through Free Trade Agreements (FTAs) with various countries and blocs. In 2025, India concluded key trade pacts with the United Kingdom (CETA), the European Free Trade Association (EFTA), Oman (CEPA), and New Zealand (FTA). The India-UK CETA, finalized in July 2025, grants Indian exporters near duty-free access to the UK market and could unlock USD 23 billion in new trade opportunities for India. The India-EFTA TEPA, effective October 1, 2025, commits USD 100 billion in investments from EFTA countries into India over 15 years.
India is also engaged in trade negotiations with the European Union, Russia, and Mexico. A trade agreement with the EU, while facing structural divergencies, could lift the existing USD 139.75 billion India-EU trade. These agreements are expected to enhance market access for Indian products, reduce dependence on specific markets, and boost key sectors like textiles, engineering goods, pharmaceuticals, and specialized manufacturing.
Another challenge on the horizon is the European Union's Carbon Border Adjustment Mechanism (CBAM), set to take effect on January 1, 2026. This mechanism will impose a carbon tax on imports, potentially affecting India's exports to the EU, particularly in sectors like steel.
To navigate these challenges, a shift in strategy is needed. A GTRI report suggests that India's trade success in 2026 will depend more on domestic execution, product quality, and cost reduction than external opportunities. This includes upgrading product quality, moving up the value chain, and reducing operational costs. The government is also implementing various export promotion schemes, such as the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, and promoting districts as export hubs.
Despite global headwinds and protectionist measures, India's export outlook for 2026 remains positive, supported by diversification efforts, strategic trade agreements, and a focus on enhancing domestic competitiveness.
